According to research commissioned by the DfE, higher-quality early years education ‘does not cost substantially more’. It was also found that maintained provision has higher delivery costs than the PVI sector.

The findings come as part of a report on the cost and funding of early years education, under the DfE’s eight-year Study of Early Education and Development (SEED).

Dr Gillian Paull from Frontier Economics, who co-authored the research, said: “This report uses newly collected data from all types of childcare and early years providers to undertake a robust analysis of the relationships between costs and a broad range of setting and local characteristics, seeking both to contribute to discussions around free entitlement funding and to provide cost data for an analysis of the value for money of the policy.

“The study also contains a specific element on the cost and revenue for early education for children with special educational needs and disabilities (SEND).”

A team of researchers visited a total of 166 settings, which included a mixture of private, voluntary and independent settings, nursery classes, maintained nursery schools, childminders and children’s centres. As part of the study, the team collected information on the costs of delivering funded education for babies to four-year-olds.

The geographical location of the setting, deprivation and whether the provider was part of a chain were all taken into account. In addition to this, a range of quality measures such as the Sustained Shared Thinking and Emotional Well-being (SSTEW) scale and whether the setting was ‘graduate-led’ were also taken into account.

Dr Paull said, “We had a very high response rate which means that the evidence should be representative of the overall picture. We estimated the hourly cost of delivery for early education and childcare.

“We have six types of providers, statistically tested for differences in costs between them.”

The study found that, due to higher staff costs, the maintained sector had higher costs than PVIs.

Dr Paull added, “We looked at funding information to find out how parental fees compared to the free entitlement rate.

“In line with other work, the free entitlement funding rate for two-year-olds is relatively generous compared with average parental fees, but is lower than average parental fees for three- and four-year-olds.”

Researchers acknowledged that there were substantial differences in cost estimates between the study conducted by the DfE and Ceeda’s report ‘Counting the cost’ which was published in 2015, as well as other studies for PVI settings.

Dr Paull said the more substantial differences in cost estimates appear to be related to the methodological approaches used, which could push up the cost estimates in the Ceeda report.

Dr Paull said, “For example, the Ceeda study assumed an additional 17 per cent in staff costs in addition to gross salaries (while SEED collected these additions more directly); only collected data in June and July (which the SEED evidence suggests are months with higher hourly costs); and included salaries for owners and interest on loans (which SEED omitted as investment returns/costs rather than ongoing delivery costs).”

In addition to this, Dr Paull said differences in cost estimates between SEED and the studies conducted by NLH Partnership and KPMG are only for 2 year olds.  This may be because these studies used average or statutory staff:child ratios to allocate costs across ages, which may have overstated the staff cost for two-year-olds.

Early years organisations expressed surprise at the findings of the study, which they said did not correspond with other research and information from their members.

Chief executive of the National Day Nurseries Association (NDNA) Purnima Tanuku said, “This study is surprising in that its conclusions don’t match other research done in this field across all childcare providers, which point towards true delivery costs being much higher.

“Our members say they have real fears about remaining viable as businesses in the face of inadequate funding and rising business costs, let alone making a profit or surplus. This is the message we have been given for the past eight years in our annual nursery survey.

“This has also been the picture within nursery schools, childminders and maintained settings. We would agree that there is real variation across the sector, which outlines the difficulties in setting a fair rate of funding for all.”

Read the full SEED report here

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